Acting Governor Flug continues to chair the meetings as the search for a successor to Fischer continues. There are reportedly three candidates that have met with the vetting committee. ILS has gotten caught up in the EM selloff, but continues to outperform. Most other EM currencies have already weakened past their July lows against the dollar. Break above 3.60 targets 3.62, 3.65, and then the July high near 3.68.

On Friday, South Africa reports July money and private sector credit and both are expected to show continued sluggishness. It will also report July trade and budget data Friday. Overall, we believe the negative backdrop of twin deficits, slow growth, and high inflation will continue and should dampen enthusiasm for the rand.

USD/ZAR made new highs for this move near 10.44 last week before recovering. The March 2009 high near 10.73 lies ahead, while support for USD/ZAR seen near 10.15 and then 10.00.

After the last meeting, officials said that easing would continue until the policy rate bottomed around 3.0-3.5% but would be at a slower pace. The majority of analysts look for a 10 bp cut to 3.95, though there is a smattering of calls for 15 bp and 25 bp cuts. The forint held up reasonably well during this latest EM selloff, with EUR/HUF unable to make much headway above 300. Support seen near August low of 296, while resistance seen near the August high of 301.

Brazil central bank meets Wednesday and is expected to hike rates by 50 bp to 9.0%.

Brazil also reports Q2 GDP and July budget data on Friday. Growth is expected to pick up slightly to 2.5% y/y (0.9% q/q) from 1.9% y/y (0.6% q/q) in Q1. FX measures taken last week by the central bank, along with some stability in market sentiment, helped the real recover but further gains will be tough as EM sentiment remains negative. Support for USD/BRL seen in the 2.30 area, while resistance is seen near the 2.45 area.

Exports have slowed sharply in Q2, and have contracted y/y for three of the past four months. Import demand has remained firm, and so the external accounts are likely to continue worsening. Last week’s surprise hike in the ceiling of the rates corridor has done little to support the lira as USD/TRY made a new all-time high near 2.00 on Friday, and is currently trading near that key level. Break above 2.00 seems only a matter of time.

The economy has stabilized enough to keep the central bank on hold since March, and the weaker peso has helped as well. Inflation remains right near the bottom of its 2-4% target range, and so the central bank has room to ease if the economy starts to slow too much again. For USD/COP, support seen near 1900 while resistance seen near 1935 and then 1950.

Over the weekend, China will report official PMI and final HSBC PMI readings for August.

HSBC flash reading jumped to 50.1 from 47.7 in July. Official PMI is seen rising to 5.5 from 5.3 in July. Worries about a China hard landing have eased for now, but we warn markets not to get too bulled up on the China growth story. Growth is likely to remain subpar in the coming quarters. We see USD/CNY trading sideways in the 6.10-6.15 range for the time being.

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